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Home My WebLink AboutManagement Report and Recommendations -` CITY OF OAK PARK HEIGHTS, MINNESOTA MANAGEMENT REPORT AND RECOMMENDATIONS DECEMBER 31, 1996 i JO TAUTGES, REDPATH & CO., LTD. CERTIFIED PUBLIC ACCOUNTANTS To the Honorable Mayor and Members of the City Council City of Oak Park Heights, Minnesota This report is prepared in conjunction with the audit of the City's 1996 Annual Financial Report. This report is designed to provide the City added analysis of financial trends, compliance issues and fund position. We offer recommendation for improvement as appropriate. Additionally, we are available to discuss this report with the City upon request. Respectfully submitted, ,99t& I r ' 4 L/V TAUTGES, REDPATH & CO., LTD. Certified Public Accountants March 25, 1997 4810 White Bear Parkway White Bear Lake, Minnesota 55110 612/426 -7000 FAX/426 -5004 Member of HLB International City of Oak Park Heights, Minnesota Management Report, Page 2 COMBINED BALANCE SHEET The Combined Financial Statements of the City are presented in Statements 1 through 5 of the 1996 Annual Financial Report. The following comments relate to these financial statements of the City. Cash and Investments December 31, Increase Description 1995 1996 (Decrease) Cheddng account ($12,059) ($14,079) ($2,020) investments 5,078,924 5,507,474 428,550 Petty cash 100 100 - Totals $5,066,965 $5,493,495 $426,530 The December 31, 1995 and 1996 checking account overdrafts are book overdrafts only and do not reflect bank overdrafts. These balances are a result of the City's policy of depositing cash m interest bearing accounts in order to maximize mvestment earnings on City monies not needed for current expenditures. The City earned $279,229 of interest on investments during 1996 compared to $269,221 in 1995. City of Oak Park Heights, Minnesota Management Report, Page 3 A schedule of cash and investment balances by fund type is as follows: December 31, increase Fund Type 1995 1996 (Decrease) - General $1,306,755 $1,453,511 $146,756 Special Revenue 8,796 6,334 (2,462) - Debt Service 440,879 495,055 54,176 Capital Project 2,833,015 3,067,464 234,449 Enterprise 523,903 512,062 (11,841) Agency (46,383) (40,432) 5,951 Total $5,066,965 $5,493,994 $427,029 Investments at December 31, 1995 and 1996 were as follows: December 31, 1995 1996 L.. i..L-i -A Description Yield Balance Yield Balance Money Marlwt Savings 3.50'/. $185,820 $360,054 AIM Government Fund Various 857,104 Various 707,319 Certificate of Deposit 5.40% 325,000 5.60% 823,000 Certificate of Deposit 5.75% 350,000 5.50% 570,000 Certificate of Deposit 5.50% 420,000 5.20% 119,000 Certificate of Deposit 5.40% 456,000 5.70 500,000 Certificate of Deposit 5.40% 150,000 5.50 200,000 Certificate of Deposit 5.35% 100,000 5.90 ° / 500,000 Certificate of Deposit 5.40% 100,000 5.75% 350,000 Certificate of Deposit 5.48% 200,000 5.75% 342,000 Certificate of Deposit 5.48% 900,000 5.70 749,000 Certificate of Deposit 5.40% 550,000 5.47% 140,700 Certificate of Deposit 5.40 105,000 5.75% 146,400 Certificate of Deposit 5.40 100,000 Certificate of Deposit 4.91% 280,000 Totals $5,078,924 $5,507,473 The City currently does not have a formal investment policy. An investment policy identifies appropriate investments and provides guidance to the clerkltreasurer. Investment policies should address such issues as diversification, liquidity, maximum maturities, credit risks and investment return We recommend the City develop an investment policy. City of Oak Park Heights, Minnesota Management Report, Page 4 Collateral for DeDosits Minnesota Statutes (MS 118) requires City Council approval of depositories and that certain levels of pledged securities (collateral) be maintained for deposits which are not insured and/or guaranteed by the Federal Government. Audit tests disclosed that the City of Oak Park Heights was not in compliance with such statutes at December 31, 1996 for deposits held at Lake Elmo Bank- (see legal compliance report) Due From Other Governmental Units December 31, Increase Description 1995 1996 (Decrease) Fines $3,022 $3,982 $960 Gravel tax 487 - (487) MCES - 900 900 City of Forest Labe - Safe and Sober - 1,805 1,805 MN DOT: Norell Avenue 2,321 - (2,321) 58th Street - Phase II 230,000 - (230,000) ISD #834 - Liaison officer 6,601 7,451 850 Totals $242,431 $14,138 ($228,293) All of the above amounts are currently collectible. City of Oak Park Heights, Minnesota Management Report, Page 5 Pronerty Taxes Receivable Property taxes receivable consist of taxes levied in the previous seven years by the City but not yet collected by the County and remitted to the City. The collection rate on property taxes remains strong as illustrated below. 1993 1994 1995 1996 Delinquent taxes - January 1 $39,017 $17,563 $21,146 $18,813 Current levy (includes Homestead and Agricultural Credit Aid - HACA) 1,302,310 1,344,630 1,430,985 1,459,621 Total collectible 1,341,327 1,362,193 1,452,131 1,478,434 Receipts: Current 1,294,478 1,336,980 1,421,284 1,452,563 Delinquent 26,441 3,359 12,034 7,675 Total receipts 1,320,919 1,340,339 1,433,318 1,460,238 Adjustments (2,845) (708) - - Delinquent taxes - December 31 $17,563 $21,146 _ $18,813 $18,196 Current collation as a percent of current levy 99'/e 99% 99 0 /0 10 We Total collections as a percent of current levy 101' /0 100'/0 y 100% 100% The adjustments to property taxes receivable consist of abatements of property taxes as a result of market valuation adjustments. . As shown above, tax collection rates have averaged 99 0 /0 over the past four years representing ' an excellent collection rate for the City. This financial indicator (i.e., property tax collection rate) is one of the major criteria used by the City's bond rating agency. City of Oak Park Heights, Minnesota Management Report, Page 6 Local property taxes are levied by the City each December for collection in the subsequent Year. However, this tax levy is not entirely paid by the property owners. A part of each annual tax levy is paid by the State Homestead and Agricultural Credit Aid (HACA) and from the fiscal disparities pool. The fiscal disparities formula is governed by Minnesota Statute 473F. This statute provides a means of spreading a portion of the taxable valuation of commercial/industrial real property to various taxing authorities within the defined metropolitan area The valuation "shared" is a portion of commercial/industrial property valuation growth since 1971. Current tax revenue (by payer) was as follows for the past four years including 1997 budgeted: 1997 Payer 1993 1994 1995 1996 Budgeted Local taxpayer $1,358,593 $1,372,448 $1,470,166 $1,494,440 $1,497,143 State credits 55,377 76,640 77,980 77,980 74,329 Fiscal disparities: Contribution (170,292) (167,432) (172,431) (179,486) (175,450) Distribution 58,632 62,974 55,270 66,681 73,225 Totals $130 310 5 $1459615 $ y 2, 51,344,630 51,430,98 , , 1,46 Shown on a basis of percents, current tax collections (by payer) were as follows for the past four years including 1997 budgeted. 1997 Payer 1993 1994 1995 1996 Budgeted Focal taxpayer 104.3% 102.1% 102.7% 102.4% 101.9 State credits 4.3% 5.7% 5.4% 5.3% 5.1% '— Fiscal disparities: Contribution (13.1 %) (12.5 0 %) (12.0%) (12.3 %) (11.9%) Distribution 4.5% 4.7% 3.9% 4.6% 4.9 Totals 100.0 100.0' /0 100.0 100.0 100.0' / Local property taxpayers (i.e., those whose property is located within the City of Oak Park Heights) pay more than the actual amount levied by the City because of fiscal disparities. The above amounts and percents are indicative that the City of Oak Park Heights is a "net loser" under _ the fiscal disparity program. The City contributes more tax base to the fiscal disparity "pool" than it receives in tax benefits. City of Oak Park Heights, Minnesota Management Report, Page 7 Special Assessments Receivable Special assessments receivable consisted of the following types and amounts: December 31, Increase Description 1995 1996 (Decrease) Delinquent $1,318 $2,913 $1,595 Due from County - 1,836 1,836 — Defirred 829,515 642,151 (187,364) Special Deferred 144,800 144,800 - Totals $975,633 $791,700 ($183,933) Deferred special assessments consist of the remaining principal installments on assessment rolls. These assessments are generally collectible over a time period consistent with the debt payment schedule of the related bond issue. Included in deferred special assessments are amounts that are billed directly to the property owner by the City. These assessments are for 58th Street improvements to Outlots A and B of the Brackey Addition. This property is classified as "green acre" status by the County and therefore the County is unable to include the assessments on the property tax statement. The amount of these direct billed assessments was $130,776 at December 31, 1996. Special deferred assessments consists partially of an assessment ($14,800) which has been , deferred pending future connection to the sanitary sewer line. This amount was deferred by City Council Resolution 84 -1 -1. The resolution does not stipulate the amount of interest to be collected upon connection, if any. We recommend the City periodically review the status of this property. The remaining amount ($130,000) consists of one parcel for Phase I of the City's 58th Street Improvement (Kern Property). This parcel was given a special deferment by City Council Resolution 93- 12 -50. This assessment is deferred pending future sale or development of this parcel. City of Oak Park Heights, Minnesota Management Report, Page 8 Compensated Absences Pavable Compensated absences payable consist of earned but unused vacation and severance pay benefits. Severance pay benefits are payable to the City's employees who have been with the City in excess of ten years and is an amount equal to fifty percent of unused sick leave. A schedule of compensated absences is as follows: Balance at December 31, 1995 1996 Severance $61,915 $67,265 Vacation 12,310 13,009 Total $74,225 $80,274 City of Oak Park Heights, Minnesota Management Report, Page 9 Bonds Pavable The City had three bond issues outstanding during 1996. A summary of the 1996 activity of _ each bond issue is as follows: Bond Issues water & Storm Sewer Sewer Refunding Refunding I. �,. �.. �... Bonds Bonds Bonds of 1992 of 1993 of 1995 Totals Balance - January 1, 1996 $105,000 $1,140,000 $1,130,000 $2,375,000 Principal payments (15,000) (15,000) (70,000) (160,000) Balance - December 31, 1996 $90,000 $1,065,000 $1,060,000 $2,215,000 Retirement schedule: 1997 $20,000 $80,000 $110,000 $210,000 1998 20,000 85,000 110,000 215,000 1999 25,000 90,000 120,000 235,000 2000 25,000 90,000 120,000 235,000 20012006 - 720,000 600,000 1,320,000 Total $90,000 $2,215,000 590,000 $1,065,000 $1,06 Detail of outstanding bond issues is contained in Exhibit 2 of the 1996 Annual Financial ' Report. The Bonds of 1992 are being repaid by property taxes. The annual property tax levy for this bond issue is $25,000 and continues through 2000. The Bonds of 1993 are being repaid by AAE (Annexation Area Extended) connection charges (see later comments regarding this Debt Service Fund). The Bonds of 1995 are being repaid by a combination of property taxes and special assessments (see later comments regarding this Debt Service Fund). City of Oak Park Heights, Minnesota Management Report, Page 10 GENERAL FUND The General Fund of the City is maintained to account for the current and capital outlay expenditures common to all cities. Property taxes are the primary revenue source for the City's — General Fund. A history of General Fund revenue is as follows: Property Tana Stale Aida All Other Total Revenue you Amount Percent Amount Percent Amount Percent Amount Percent 1986• 579.557 63% $168,341 18 0 /0 5165,625 19% 5913,523 100'/• — 1987* 681,636 68 183,194 18 0 /0 132.538 14% 997,368 100 1988 804.441 70 4 /4 194,072 17% 152.137 13% 1,150,650 100 1989 868.420 68110 198.888 16% 211,570 17 1,278,878 101% 1990 1.142,770 79% 25.627 2% 280,348 19 1,448.745 100 — 1991 1,057,578 72% 36,262 2% 366.575 25% 1.460,415 100 1992 1.121,894 73% 69,172 4 0 /9 349.717 23% 1,540,783 99'/• 1993 1,241,127 71% 87,874 5% 413.444 24% 1,742.445 100 1994 1.232,906 68% 118,768 7% 465,964 26 0 /9 1,817,638 101% -- 1995 1,354,677 68% 124,860 6% 520.466 26% 2.000.003 100% 1996 1.390,443 66% 119,274 6 581.850 28 2,091,567 100 1997 ** 1,371,254 69 127,251 6% 485.430 25% 1.983,935 100% • includes Federal Revenue Sharing ss Budgeted A graph of property taxes, state aids, and other revenue for the General Fund is as follows: $ 1,400,000 General Fund Revenue by Source -- $1,200,000 $1,000,000 $800,000 - ■ State Aids ® Other Revenue $600,000 ®Property Taxes $400,000 $200,000 $0 - 1987 1989 1991 1993 1995 1997 City of Oak Park Heights, Minnesota Management Report, Page 11 State Aids State aids of the General Fund have consisted of the following for the past six years (with _ 1997 budget): 1997 stab Aid 1991 1992 1993 1994 1995 1996 Budget Local pakrmance aid s - $ - $ - $ - $ - S - S4,186 _ HA.CA. 4,611 36,740 54,358 75,245 76,615 67,063 73,065 Police aid 31,651 32,432 33,516 43,523 48,245 52,211 50,000 Totals 536,262 569,172 587,874 5118,768 5124,860 5119,274 5127,251 Change $32,910 _ S18,702 530,894 _ 56,092 (55,586). ....... _S7,977„ /• Change 35 % 5 ( %) „_.. 7•/• A graph of State aids for the past eight years (with the 1997 budget) is presented below: $200,000 r _ 1 $180,000 = State Aids $160,000 $140,000 $120,000 $100,000 $80,000 - $60,000 • $40,000 $20,000 $0 1989 1990 1991 1992 1993 1994 1995 1996 1997 Budget 10L.G.A. ®H.A.C.A. ■PolimAidj , City of Oak Park Heights, Mnnesota Management Report, Page 12 Other General Fund Revenue Other revenue of the General Fund have consisted of the following for the past five years (with 1997 budget): 1997 Description 1992 1993 1994 1995 1996 Budget Licenses and permits $93,908 $62,898 $60,914 $117,511 $156,181 $136,580 Charges for services: Refuse collection 66,076 103,039 108,310 110,021 103,444 93,000 Enterprise 78,000 80,000 94,250 95,000 98,850 102,100 Other 2,626 4,476 2,681 2,329 2,674 2,200 Inspections - 20,800 34,402 34,524 25,611 15,000 Fines and forfeits 38,557 44,189 55,111 49,020 56,545 52,100 Interest earnings 33,728 25,180 34,473 54,912 56,468 45,000 Other 36,822 72,862 75,823 57,144 82,077 39,450 Total $349,71 $413,444 $465,964 $520,461 $581,850 $485,430 _ The City began charging for refuse collection in 1988. Refuse collection revenue as a percent of refuse collection expenditures is as follows: Refuse Refuse Revenue as Collection Collection Net Percent of Year Revenue Expenditures Cost Expenditures 1989 $26,850 $174,244 ($147,394) 15% 1990 43,095 216,388 (173,293) 20% 1991 64,721 248,806 (184,085) 26% 1992 66,076 251,121 (185,045) 26% 1993 103,039 297,452 (194,413) 35% 1994 108,310 326,926 (218,616) 33% 1995 110,021 334,053 (224,032) 33% 1996 103,444 326,036 (222,592) 32% 1997(l) 93,000 317,000 (224,000) 29% (1) Budgeted amounts City of Oak Park Heights, Minnesota Management Report, Page 13 The following schedule and graph reflect the revenue of the General Fund for the past two years including 1997 budget. Additional detail of the revenue is presented in Statement 7 of the _ 1996 Annual Financial Report. J r General Fund Revenue 1995 1996 1997 Budget Description Amount Percent Amount Percent Amount Percent General property taxes $1,354,677 67.7% $1,390,443 66.5% $1,371,254 69.1% Intergovernmental: state 124,860 6.2% 119,274 5.7% 127,251 6.4% County and other 19,620 1.0% 26,467 1.3% 18,950 1.0 Licenses and permits 117,511 5.9% 156,181 7.5% 136,580 6.9 Charges for services 241,874 12.1% 230,579 11.0% 212,300 10.7 Interest on investments 54,917 2.7% 56,468 2.7% 45,000 2.3% Fines and forfeits 49,020 2.5% 56,545 2.7% 52,100 2.6% All other 37,524 1.94/0 55,610 2.6 20,500 1.0 Totals $2,000,003 100.0% $2, �e ,,.... 091, ,. 567 , 100 $1,983,935 . 1 General Fund Property Taxes 1997 Budgeted Revenue 69.1% h tecgovernmental 7.4 % Liceum and Permits 6.9% , All Other Interest on Charges for Services 3.6% Investments 10.7% 2.3% / City of Oak Park Heights, Minnesota Management Report, Page 14 Expenditures (by major classification) for the past two years plus the 1997 budget, are as follows: General 1Irnd Expenditures 1995 1996 1997 Budget Description Amount Percent Amount Percent Amount Percent Current expenditures: t OVIl l 66 r i .... :,.,; $ 398,640 20.4% $441,852 21.5% $439,665 21.3% Public safety 723,034 37.0'/0 791,916 38.5% 850,545 41.1% Streets and highways 86,000 4.4% 136,611 6.6% 97,725 4.7 Sanitation 344,396 17.6 334,175 16.2% 327,600 15.8 Ramon 178,567 9.1% 185,372 9.0 203,650 9.8 Contingency - 0.0 - 0.0 8,800 0.4% Court judgment - 0.0 100,000 4.9% - 0.0 - Capital outlay 61,604 3.2% 34,645 1.7% 43,600 2.1% Transfer out 160,000 8.3% 35,000 1.6% 96,000 4.8% Totals $1,952,241 100.0% $2,059,571 100.0% $2,067,585 100.0% -' A graph of the above expenditures is presented below: -' General Fund 1997 Budgeted Expenditures stroas & Highways Public Safety 41.196 4.7% Sanitation 15.8% Recreation 9.8% General Government Capital Ouday & Other 21.3% 7.3% City of Oak Park Heights, Minnesota Management Report, Page 15 The fund balance of the General Fund was $1,312,593 at December 31, 1996 representing a $31,996 increase during 1996 as follows: Actual Revenue Greater /(Less) Than Budgeted Revenue: General property taxes: Current and deliguent $1,002 Payment in lieu of tax 7,185 Excess Zg 14,711 governmental 7,711 Licenses and permits 47,011 Charges for services (9,271) Fines and forfeits 5,445 Interest on investments 11,468 Other 37,330 $122,592 r Actual Expenditures (Greater)/Less Than Budgeted Expenditures: 525 General government 6,162 Public safety Streets and highways (45,611) Sanitation: Current 34,825 " 100,000) Recreation ( 13,503 (90,596) Net increase in fund balance for 1996 $31,996 A summary of the significant budget variances is as follows: Revenue: Excess TIF - TIF districts do not benefit from increases in the tax rate. This "excess" TIF , by statute must be allocated to the General Fund. The City does not budget for excess TIF as this money has been designated for street reconstruction. Intergovernmental - the positive budget variance relates primarily to police aid exceeding budget by $6,211. License and permits - this budget variance relates primarily to building permit revenue ' exceeding budget by $42,724. City of Oak Park Heights, Minnesota Management Report, Page 16 Other - the positive budget variance is the result of receiving an insurance dividend of $20,700 from the League of Minnesota Cities and proceeds from the sale of a tractor/loader in the amount of $8,500. Exuenditures: Streets and hishwava - the unfavorable budget variance relates primarily to snow removal exceeding budget by $51,144. ,Sanitation - the positive variance in refuse collection is the result of a rate reduction from the contract hauler. General Fund Reserves The fund balance of the General Fund has increased over the past several years. The schedule y below reflects the fund balances for the past ten years: _ Year Ended Fund Increase December 31, Balance (Decrease) 1987 $782,771 $90,251 1988 870,705 87,934 1989 910,630 39,925 1990 1,066,281 155,651 —' 1991 1,001,051 (65,230) 1992 1,013,422 12,371 1993 1,106,882 93,460 1994 1,197,835 90,953 1995 1,280,597 82,762 1996 1,312,593 31,996 City of Oak Park Heights, Minnesota Management Report, Page 17 Reserve balances are an important component of City financial management • However, the appropriate amount of reserve balances is a question that is open to some debate. When evaluating the adequacy of reserve balance, there are a number of important factors that must be considered. A summary of some of these considerations for general fund reserve balances is as follows: Considerations for Reserves Benefits of Reserves Cash flow timing diffcmm. • Favorable bond rating indicator. Expenditures are incurred somewhat evenly throughout the year. property taxes & state aids are not received until the second half of the year. A reserve of one-half of such . suppl revenues with investment earnings. revenues is therefore recommended. Int" ", ,,-- .,ental W ue cutbacks. • Provides resources for minor projects or The City is vulnerable to legislative actions at both the Federal feasibility reports. k State level. Federal finding to local , ., .. , . , - . t has been . Avoids temporary overdrSN prior to .w substantially curtailed in recent years. Annual adjustment of Cash flow). Local ouvernment Aid a HACA formulas is a constant throe maJ � receipts CAAW gw Y Em lacement • City may study effects of revenue cuts before Internal escrow accumulation far purchases which may gradual program reductions. exceed amounts available in any single budget cycle• This may also be accomplished though irawfam to dedieded . Avoids overburdening of annual budgets for re certain capital outlay. Emzvwv or Examples include natural disasters, lawsuits, comparable worth implementation and premsf re breakdown • Provides the City greater options to deal with of vital equipment unexpected events. Special Citv Council Droiects., preliminary studies, interf nd loam and minor projects are examples of reserve uses. Resources available in other finals, A city may have reserves in other funds for purposes such as compensated absences, capital acquisition or special projects. City of Oak Park Heights, Minnesota Management Report, Page 18 During 1987, the City adopted Resolution 87 -10-42 establishing General Fund reserves/ designations for cash flow, employee benefits and general contingency based upon formulas for each category. At December 31, 1995 and 1996, the General Fund balance was designated as follows: General Fund Balance December 31, 1995 1996 Designated for Cash flow $717,000 $724,000 _ Contingent employee benefits 168,606 197,308 General contingency 292,000 245,823 Capital L., 4 0';. 1..entS 58,251 72,962 Cooperation study 2,780 Comprehensive plan 35,000 11,500 Ensuing year's budget deficit - 61,000 Subtotal 1,273,637 1,312,593 Undes4patod 6,960 - Total fund balance 1,280,597 1,312,593 _ Cash Flow Reserve Property taxes and state aids account for approximately 75% of the revenue of the General Fund. Property taxes and state aids are not received until July and December of each year (i.e., the second half of the year). As a result, the City is required to have sufficient reserves at the beginning of the year to fund operations of the first half of the year. For the City of Oak Park Heights, the recommended cash flow reserve is $724,000, computed as follows: Cash Flow Reserve 1997 tax levy $1,371,254 1997 budgeted RACA & LPA 77,251 Tom $1,448,505 Recommended reserve (one-half of tax levy and state aids) $724,000 City of Oak Park Heights, Iv mesota Management Report, Page 19 The following graph of monthly general fund cash balances illustrates the impact of receiving property taxes and state aids in the second half of the year: $1,600,000 General Fund Monthly Cash Balances $1,400,000 ........... $1,200,000 $1 1 000,000 mo poo .... ... ... .... ..... ... $800,000 .... .... $600,000 .... .... .... ..... ..... ..... ... .... ..... .... .. . .... ..... ..... ... ... .... ..... .. .... .... .... .... ... $400,000 ..... ..... ..... ..... $200,000 $0 19t tn As shown above, the cash balance decreased $770,000 between January 1 and June 30, - illustrating the need for a cash flow reserve. City of Oak Park Heights, Minnesota Management Report, Page 20 General Contingency Reserve The amount of General Fund reserve required to meet emergency and/or unanticipated expenditures is not readily quantifiable. Rather, the level of this requirement must be established by the City based on the history of the City and the philosophy of "adequate" reserve coverage. Currently, the City of Oak Park Heights has set this reserve equal to 15% of the General Fund operating budget subject to availability of such amounts, as follows: General Contingency Reserve December 31, Description 1995 1996 '- Ensuing Year's Budget $1,950,605 $2,067,585 Reserve Amount @ 15% $292,000 $310,000 However, the City may consider establishing an alternative formula for this reserve. The current requirement is approximately equal to two months operating expenditures. The City may consider changing this to an amount equal to one month's operating expenditures which would be 8.33% or $172,000. A second alternative may be to establish a maximum amount for this reserve. -- EmDlovee Benefits Reserve The employee benefits reserve is computed based upon accrued, but unpaid, employee benefits as follows: ... Employee Benefits Reserve December 31, _ Employee Benefit 1995 1996 Vacation leave $12,310 $13,008 Severance 61,914 67,264 Unused sick leave 94,382 117,036 Total $168,606 $197,308 City of Oak Park Heights, Minnesota Management Report, Page 21 The unused sick leave portion of this reserve is the remaining balance after deducting the portion that qualifies as severance. The purpose of this reserve is to provide funds in the event that a temporary employee is required while a permanent employee is on sick leave. The City may consider reviewing the reserve balance required and adjust this balance as deemed appropriate. _ Capital Improvements Reserve _ The capital improvements reserve is the accumulation of "excess TIF" monies. TIF districts do not benefit from increases on the tax capacity rate. The "excess TIF" related to the increased tax rate is required by statute to be allocated to the General Fund. These funds have been designated for street reconstruction activities. This reserve consists of the following: Exams TIF Year Recdved 1991 $2,473 1992 10,472 1993 15,037 1994 14,397 r 1995 15,872 1996 14,711 Subtotal 72,962 Less amounts used - Reserve balance at 12/31/96 $72,962 The City of Oak Park Heights has taken actions over the past several years to improve the financial position of its General Fund. An adequate reserve structure has enabled the City to retain its financial independence and integrity. City of Oak Park Heights, Minnesota Management Report, Page 22 Emolovee Health Insurance The City self insures for a portion of employee health insurance. Currently the City budgets for the maximum out -of- pocket costs that may be incurred. For 1996, the deductible portion was significantly less than budgeted as follows: $9,859 Maximum claims exposure - single 37,717 Maximum claims exposure - family 47,576 Subtotal (20,438) Claims deposits made in 1996 $27,138 Budgetvarianm As shown above, the City experienced a favorable budget variance of $27,138. This was the result of budgeting for the maximum claims exposure. As an alternative, the City may consider establishing a reserve for the self - insured portion of employee health insurance. This would enable the City to annually budget health insurance at an amount that would be an average of claims cost over a multi -year period. — City of Oak Park Heights, Minnesota Management Report, Page 23 SPECIAL REVENUE FUND Special Revenue Funds are a classification of funds to account for revenues (and expenditures related thereto) segregated by City policy, Federal or State statutes for specific purposes. The City maintained one Special Revenue Fund during 1996. Forfeiture and Seizure Fund This fund was established in 1991 to account for property forfeited pursuant to MS 609.531. A summary of the financial activity of this fund from inception is as follows: Prior Years 1996 Total Revenue: Confiscated property $24,842 $3,850 $28,692 Reambumements - 1,680 1,680 Intr 1,347 400 1,747 Total $26,189 $5,930 32,119 Expenditures: Public safety: Materials and supplies $7,363 $4,641 12,004 Capes outlay 10,030 3,751 13,781 Total $17,393 $8,392 25,785 Fund balance - December 31, 1996 $6,334 The use of these funds is restricted by MS 609.531 subd. 5 to "supplement the agency's operating fund or similar fund for use in law enforcement." City of Oak Park Heights, ]Minnesota Management Report, Page 24 DEBT SERVICE FUNDS The combining financial statements for the Debt Service Funds are presented in Statements 10 and 11 of the 1996 Annual Financial Report. Debt Service Funds are a type of governmental fund to account for the ac mmlation of resources for the payment of interest and principal on debt (other than Enterprise Fund debt). The City maintained three Debt Service Funds during 1996 as follows: Fund Balance December 31, Increase _ Fund 1995 1996 (Decrease) Storm Sewer Refunding Bonds of 1992 $21,068 $26,961 $5,893 Water and Sewer Refunding Bonds of 1993 226,438 256,625 30,187 G.O. Improvement Bonds of 1995 192,547 212,722 20,175 Totals $440,053 $496,308 $56,255 Storm Sewer Refunding Bonds of 1992 These bonds were issued to provide financing for the Storm Sewer District construction. The City Council established this district in October, 1982 per City ordinance 1600. A oroiection of the final fiord position based on scheduled levies and debt requirements is as follows: Fund balance - December 31, 1996 $26,961 Additions: Future scheduled tax levies @ 100 98,664 _ Total 125,625 Deductions: Debt requirements: Principal 90,000 Interest 12,495 Total 102,495 Projected fund balance $23,130 _ The above projection indicates that this fund will have adequate assets to meet bonded debt requirements over the scheduled term of this bond issue. The above projection also indicates the City may be able to cancel the final year's tax levy (year 2000) for the bond issue. The scheduled tax levy for the year 2000 is $25,000. City of Oak Park Heights, Minnesota Management Report, Page 25 Water and Sewer Refunding Bonds of 1993 The Water and Sewer Revenue Bonds of 1991 were issued to provide financing for Phase I of the City's Annexation Area Extended (A.A.E.) Trunk facility improvements. The City has established special area connection charges to provide for the retirement of these bonds and for _ financing additional trunk facilities in this area. These bonds were refinanced by the Refunding Bonds of 1993 to reduce interest costs by approximately $95,000 over the remaining term of these bond issues. During 1996, the City transferred $120,000 from the A.A.E. Connection Charge Fund to this Debt Service Fund for this bond issue. This cash transfer (along with special assessments and other assets committed to these bonds) will be sufficient to meet the 1997 and 1998 scheduled debt payments. Future (1997 through 2004) projected cash transfers are as follows: Sanitary Water Year Sewer Works Total 1997 $20,000 $105,000 $125,000 1998 20,000 105,000 125,000 1999 20,000 105,000 125,000 2000 20,000 115,000 135,000 2001 20,000 120,000 140,000 2002 20,000 125,000 145,000 2003 30,000 135,000 165,000 2004 5,000 50,000 55,000 Totals $155,000 $860,000 $1,015,000 City of Oak Park Heights, Mmesota Management Report, Page 26 A projection of cash flow of the Water and Sewer Refunding Bonds of 1993 assuming cash -- transfers from the Connection Charge Fund is as follows: City of oak Park Heights, Nonnesou Projection of Cash9ow Water and Sewer Refunding Bonds of 1993 Total Cash Balance Property Special other Investment Projected Debt Other Cash Balance Yew January 1 Taxas Assessments Rea3pts Interest Reoripts Payments Di ., s December 31 1997 $256,625 $0 $22,470 $125,000 $12,481 $159,950 $129,130 $0 $287,445 1998 287,445 0 6,114 125,000 13,847 144,961 131,090 0 301,316 1999 301,316 0 0 125,000 14,500 139,500 132,690 0 308,127 2000 306,127 0 0 135,000 14,924 149,924 133,910 0 324,141 2001 324,141 0 0 140,000 15,793 155,793 134,826 0 345,108 2002 345,108 0 0 145,000 16,854 161,854 150,326 0 356,636 2003 356,636 0 0 165,000 17,585 182,585 149,806 0 389,416 _ 2004 389,416 0 0 55,000 18,803 73,803 158,806 0 304,413 2005 304,413 0 0 0 14,378 14,378 166,806 0 151,985 2006 151,985 0 0 0 7,222 7.222 78,900 0 80,307 Total So ...affi 51,015 „000 $146,388 $1.189,972 $1,366 $0 528° ,.._ A.wmoaticos ' Special assessment collection ate .................... 95% Property tax collection rate ... ........................... 99% Investment interest rate ... ............................... 3.00% Negative interest charged to funds? .................. no As shown above, this fund has a projected surplus of $80,307 upon final bond maturity. This projection is dependent on sufficient transfers from the Connection Charge Fund. The City has established a reserve in the Water and Sewer Utility Fund of $661,765. This reserve was established to provide "back-up" financing for this bond issue. The connection charge revenue from existing development/developer agreements is not sufficient to fund the debt service of this bond issue. Therefore, if no additional development occurs, the Utility Fund reserve will be needed. City of Oak Park Heights, Mnmesota Management Report, Page 27 G.O. Improvement Bonds of 1995 This bond was issued to provide financing for the first phase of the street reconstruction _ project. This bond will be repaid by a combination of special assessments and property taxes. A projection of cash flow of the Improvement Bonds of 1995 is as follows: Cily of oaik Park Heights. Mmoesota Pmjection of CuMow Ga rd obligation I t Bonds of 1995 Total Cash Balance Property Special Other Iavestment Projected Debt Other Cash Balance Year Jaeuary 1 Taxes Assessments Receipts Interest Receipts pt" mu Disbursements December 31 1997 $211,557 $0 $68,961 $61,000 $10,425 $140,386 $158,660 $0 $193,283 1998 193,283 58,410 66,133 0 10,028 134,571 154,096 0 173,758 1999 173,758 59,400 63,305 0 9,065 131,770 159,420 0 146,107 2000 146,107 59,400 60,477 0 7,735 127,612 154,140 0 119,579 2001 119,579 59,400 57,649 0 6,463 123,512 148,740 0 94,351 2002 94,351 59,400 54,821 0 5,257 119,478 143,280 0 70,549 2003 70,549 59,400 51,993 0 4,125 115,518 137,700 0 48,367 2004 48,367 59,400 49,165 0 3,075 111,640 132,000 0 28,007 2005 28,007 59,400 46,337 0 2,122 107,859 126,000 0 9,865 2006 9,865 0 0 0 493 493 0 0 10,358 SO Total $47 4,210 $518.839 , .... S61.000 ..,. Aasumpticns • Special UMMUMA collection rate .................... 95% Property tax collection rate .............................. 99% Investment interest rate ... ............................... 5.00% Ne¢ative interest chareed to funds ? .................. no As shown above, this fund is projected to have a surplus of $10,358 upon final bond maturity. This projection is dependent on levying the scheduled property taxes (or providing alternative financing) and experiencing a special assessment collection rate of 95 %. City of Oak Park Heights, Minnesota Management Report, Page 28 CAPITAL PROJECT FUNDS The financial statements for the Capital Project Funds are presented in Statements 12 and 13 of the City's 1996 Annual Financial Report. The fund balance (deficits) of the Capital Project Funds were as follows at December 31, 1995 and 1996: December 31, Increase Fund 1995 1996 (Decrease) Revolving Capital Fund $792,799 $1,004,721 $211,922 Capital I , , y1 , � : Y , . ...eats Fund 297,353 236,680 (60,673) Park 8t Recreation Development 250,301 275,641 25,340 St. Croix Mau (M 6,156 64,466 58,310 River Hills 2nd Addition _ - Sttcd Reconshuction 152,589 128,711 (23,878) East Oaks - Swager Bros. 622 41 (581) Valley View Estates - Krongard - - _ Renewal and Replacement 799,452 942,654 143,202 West Frontage Road Connection - (947) (947) -' Interim Construction - (1,386) (1,396) AAE - Sanitary Sewer Connection 93,091 112,114 19,023 AAE - Water Connection 161,005 123,021 (37,984) -- AAE - Storm Sewer Connection 155,429 67,668 (87,761) AAE - 58th Street Improvement - Phase II 111,077 57,304 (53,773) AAE - 58th Street Improvement - Phase III (5,987) (27,414) (21,427) -. AAE - Bradwy Addition 108,501 6,444 (102,057) AAE - Haase Addition 9 22 13 AAE - Autumn Ridge 378 471 93 AAE - Autumn Ridge 2rd Addition - _ _ AAE - Autumn Ridge 3rd Addition - _ - Totals $2,922,775 $2,990,211 $67,436 City of Oak Park Heights, Minnesota Management Report, Page 29 Revolving Capital Fund During 1984, the City established the Revolving Capital Fund (formerly Closed Bond Fund). Initial financing for this fund was provided through the residual balances of closed (or defeased) special assessment Debt Service Funds of the City. Debt Service Funds accumulate surplus _ balances because of several factors: Some of these factors include the following: 1) Minnesota statutes require assets pledged for debt retirement (assessments and/or taxes) in an amount equal to 105% of debt service requirements. If a City experiences a good collection rate for assessments and taxes, the 5% excess requirement accumulates, — creating a surplus. 2) Changes in investment interest rates may create surplus balances. For example, during the mid- 1980's, the City's investments were earning in excess of 10`/0. The bond issues outstanding at that time had interest rates of 4 0 /6 to 6 %. This difference in rates provided r the City the opportunity to purchase investments at a cost of $582,000 which were sufficient to pay off bonds totaling $805,000, creating a surplus balance. r r City of Oak Park Heights, Minnesota Management Report, Page 30 A summary of transactions from inception is as follows: Revolving Capital Fund Prior Description Years 1996 Total Financial Remxux=: Transfers in: 1960's Bond issues $345,901 $ - $345,901 _ 1970's Bond issues 211,894 - 211,894 19Ws Bond issues 256,717 - 256,717 Construction funds: AAE - Storm Sewer 90,000 50,000 140,000 AAE - Streets 209,383 - 209,383 Other 70,144 - 70,144 General property taxes 2,168 89 2,257 Special assessments 365,748 79,699 445,447 Connection charges: Valley View Estates 63,610 33,705 97,315 Other 153,185 26,435 179,620 Escrow interest earnings 3,755 207 3,962 Investment interest 509,205 48,424 557,629 Temp. loan interest 19,161 - 19,161 Total financial resources $2,300,871 $238,559 2,539,430 Financial Uses: Expenditures 166,298 26,637 192,935 Transfers out: General Fund 22,100 - 22,100 Bonds of 1990 15,775 - 15,775 Capital Improvement Fund 200,000 - 200,000 Construction Funds: 58th Street - Phase ll 345,000 - 345,000 Other City Projects 163,899 - 163,899 AAE - Storm Sewer 360,000 - 360,000 AAE - Streets 235,000 - 235,000 Temp. Loan: IAN - Dot - - - "' Total financial uses $1,508,072 $26,637 1,534,709 Fund balance - December 31, 1996 $1,004,721 City of Oak Park Heights, Minnesota Management Report, Page 31 In addition to the above fiord balance, this fund has assessments receivable of $349,269 relating to the 58th Street Improvement Project. Additionally, this fund provided financing of the storm sewer portion of the High School Road improvement ($360,000 transfer) which is to be repaid by future storm sewer connections. The amount remaining to be repaid was $220,000 at December 31, 1996. The purpose of the Revolving Capital Fund has been to receive residual balances of closed special assessment bonds. Amounts on hand at December 31, 1996 are available for use at the Council's discretion. City practice regarding the use of such monies has included the following — areas: • Temporary funding of other Debt Service Fund deficits. • Supplemental financing of construction deficits. • Full financing of minor construction projects. • Supplemental financing of replacement of systems (water and sewer) which had been previously assessed. • Long -term capital improvement program financing. r City of Oak Park Heights, Minnesota Management Report, Page 32 Capital Improvements Fund The Capital Improvements Fund was established in 1978 to account for monies set aside for various capital improvements. A schedule of activity from inception is as follows: Prior Description Years 1996 Total Financial Resources: Transfers in: General Fund $1,170,075 $35,000 $1,205,075 Revolving Capital Fund 200,000 - 200,000 Interest earnings 194,415 14,718 209,133 Sale of property 9,414 - 9,414 Donationslother 32,619 1,072 33,691 Total financial resources $1,606,523 $50,790 1,657,313 Financial Uses: Expenditures: Municipal Bldg. - Phase I $106,785 $ - 106,785 Municipal Bldg. - Phase R 486,637 - 486,637 Sealcoat 218,727 - 218,727 Land acquisition (Connel) - 20,000 20,000 Recreation 207,816 34,127 241,943 A.D.A 35,369 46,643 82,012 Street reconstruction: Expenditure - 321 321 Transfer out 155,000 - 155,000 Perro Creek - 7,820 7,820 Unallocated: City Hall - lights retrofit 8,160 - 8,160 City defense siren 14,668 - 14,668 Phone system 10,600 - 10,600 Prison pond 12,532 - 12,532 Other 12,226 2,552 14,778 General Fund 40,650 - 40,650 Total financial uses $1,309,170 $111,463 1,420,633 Fund balance - December 31, 1996 $236,680 City of Oak Park Heights, Minnesota Management Report, Page 33 The Capital Improvements Fund is budgeted annually by the City Council in conjunction with the City's budget process. As part of such process, the City allocates the monies in this fund to _ specific projects and/or programs. Such allocation/designations were as follows at December 31, 1996: Purpose Amount _ Sealcoat $40,273 Land acquisition 20,000 Recreation 43,261 A.D.A. (Americans with Disabilities Act) 629 Strimt reconstruction 69,679 Perro Creek 7,180 ` Unallocated 55,658 Total $236,680 During 1996, the City approved a pledge of $200,000 to the St. Croix Sport Facility Commission. The pledge is to be paid over a period of years with $50,000 to be paid in 1997 and $15,000 to be paid annually for ten years. The Capital Improvements Fund would be an appropriate source for funding this pledge. Park and Recreation Development, This fund was established by Resolution 88 -12 -33 to account for the development of the City's parks and recreational areas. The fund balance was $275,641 at December 31, 1996, as follows: Prior Years 1996 Total , Financing Resources: Park fees $244,944 $11,250 $256,194 Donations and contnbutions 4,112 - 4,112 , Interest on investments 16,015 14,501 30,516 Total financing sources $20,127 $14,501 290,822 Financing Uses: , Professional services $14,770 $411 15,181 Fund balance - December 31, 1996 $275,641 '— City of Oak Park Heights, Minnesota Management Report, Page 34 A summary of park dedication fees is as follows: Park Development Fee AM Area: _ Autumn Ridge - Phase I $11,700 Autumn Ridge - Phase 11 4,294 Autumn Ridge - Phase III 11,250 Bradmy Addition 98,735 "— Haase Addition 25,795 River Hills 12,150 Wal-Mart 36,750 Subtotal 200,674 All Other: Fast Oaks - Swager 10,400 Valley View Estates - I 18,140 Valley View Estates - U 12,580 Other 14,400 Subtotal 55,520 Total $256,194 The above balance at December 3 1, 1996 has not been designated for any specific project. City of Oak Park Heights, Minnesota Management Report, Page 35 River Hills (Heritage) 2nd Addition This project was started in 1993. Financing is provided by the developer under a letter of credit arrangement. The following schedule summarizes the past and projected financial activity for this project: 1993 Through 1995 1996 Totals _ Financial Resources: Developer charges $193,498 $13,258 $206,756 Investment c gs 1,350 550 1,900 Transfer in: From 1st addition 13,677 - 13,677 Total financial resources $208,525 $13,808 222,333 Financial Uses: ` Construction costs: Contractor $175,287 $8,700 183,987 gng, tesftg, etc, 28,796 2,678 31,474 Legal and fiscal 4,255 - 4,255 Other costs 187 2,430 2,617 _.._ ,.,. ~ Total financial uses $208,525 $11 3,808 222,333 Fund balance - December 31, 1996 $0 This project is 100 developer financed. City of Oak Park Heights, Minnesota Management Report, Page 36 St. Croix Mall (Tn This fiord was established in 1989 to account for the St. Croix Mall TIF project. Additionally, this fiord accounted for the City's 58th Street and Osgood Avenue Improvement Project. The City entered into a development agreement with Watson Center, Inc., whereby 60 1 /6 of the tax increment generated is paid to the developer as reimbursement for land acquisition and site improvement costs. The maximum amount of developer assistance is $847,770. This district is scheduled to terminate on December 31, 1998. The following schedule summarizes the past financial activity for this project: Prior Years 19% Totals Financial Resources: T.I.F. taxes $742,193 $142,586 $884,779 investment cgs 7,415 1,275 8,690 Tom financial resources $749,608 $143,861 893,469 Financial Uses: Conaftuction costs: 58th Street/Osgood improvement project $150,078 $ - 150,078 Developer assistance 444,831 85,551 530,382 Professional fees 2,743 - 2,743 ,.., Transfer out: Street reconstruction 145,800 - 145,800 Total financial uses $743,452 $85,551 829,003 Fund balance - December 31, 1996 S64,466 During 1995, the City adopted resolution 95 -03 -12 modification No. 1 to the 1989 St. Croix Mall Tax Increment Plan. This modification provided for street reconstruction costs to be included in the tax increment financing plan. Housing TIF No. I The City established Housing TIF No. 1 through the adoption of resolution 964)6 -15. City of Oak Park Heights, Minnesota Management Report, Page 37 East Oaks - Swager Bros. This fund was established in 1994 to account for expenditures associated with the developer _ agreement with Swager Bros. Key points of the developer agreement are as follows: • All improvements will be completed and paid for by the developer. • Park dedication fee of $10,400 (received in 1994). • Connection charges of $55,250 (26 lots @ $2,125). This project is not in the A.A.E. area and therefore the connection charges will be receipted in the Revolving Capital Fund. • Reimbursement of all administrative, legal or engineering costs incurred by the City. Vallev View Estates - Kron This fund was established in 1994 to account for expenditures associated with the developer agreement with Krongard Construction. Key points of the developer agreement are as follows: • All improvements will be completed and paid for by the developer. • Park dedication fee of $18,140 (received in 1994). • Connection charges of $164,565 (the original budget was for connection of $150,939; 8 single family, 24 twinhome and 52 townhome). This project is not in the AAE area and therefore the connection charges will be receipted in the Revolving Capital Fund. • Reimbursement of all administrative, legal or engineering costs incurred by the City. A summary of the connection charges related to this project are as follows: Budgeted Received through 12/31/96 Unit No. PerMnit Total No. Amount Single family 2 $2,785.73 $5,571.46 2 $5,543.70 Twinhome 38 2,151.35 81,751.30 26 55,936.10 Townhome 52 1,485.44 77,242.88 26 38,621.44 Total $164,565.64 $100,101.24 City of Oak Park Heights, Minnesota Management Report, Page 38 Renewal and Renlacement This fund was established in 1994 for the purpose of creating a reserve balance for partial financing of future costs to renew and/or replace existing utility systems. This partial financing will be required as these systems are replaced because it is anticipated the City will be unable to assess 100% of such replacements. Initial funding was provided by a transfer of $574,378 from the Water and Sewer Utility Fund. This transfer represented depreciation charges accumulated since 1969. Annually thereafter, additional transfers equal to depreciation on contributed assets are to be transferred. A summary of the financial activity from inception is as follows: Prior Years 1996 Total Financial Sources: Transfer from water and sewer utility: Initial (1994) $574,378 $ - $574,378 Annual 188,023 98,324 286,347 Inunst 52,905 44,878 97,783 Total financial sources $815,306 $143,202 958,508 Financial Uses: _ Transfer out: Street reconstruction $15,854 $ - 15,854 ..., Fund balance - December 31, 1996 $942,654 City of Oak Park Heights, Minnesota Management Report, Page 39 Street Reconstruction This fund was established in 1996 to account for the first phase of the street reconstruction program. A summary of financial activity is as follows: Prior Years 1996 Total r Financial resources: Bond proceeds $1,062,456 $ - $1,062,456 Interest 13,844 10,438 24,282 Transfers in: Capital Improvement Fund 155,000 - 155,000 St, Croix Mall TIF 145,800 - 145,800 Renewal and Replacement 15,854 - 15,854 Total financial resources $1,392,954 $10,438 1,403,392 Financial uses: Project costs $1,240,365 $34,316 1,274,681 r Fund balance - December 31, 1996 $128,711 West Frontage Road Connection This fund was established in 1996 to account for the preliminary costs related to the above mentioned project. This fund incurred expenditures of $947 during 1996. Interim Construction This fund accounts for preliminary costs of various projects. The expenditures for 1996 were $1,386 for planner services relating to the Haase light industrial development. ' Annexation Area Extended (A.A.E.1 In response to development projects from non - resident property owners, the City developed a plan of action to provide trunk utility services ( water, sanitary sewer, and storm sewer) to properties annexed to the City after July 28, 1988. The Annexation Area Extended includes approximately 950 acres of property generally south of State Highway 36 between Oakgreen Avenue (on the east) and State highway 5 (on the west). City of Oak Park Heights, Minnesota. Management Report, Page 40 AAE - Autumn Ridge (Phases L II and III) These fimds were established to account for expenditures associated with the developer agreement with Arcon Development. Key points of the developer agreement are as follows: • All improvements paid for by the developer. • Park dedication fees as follows: Phase I - $ 11,700 (received in 1995) Phase II - $4,294 (received in 1995) Phase III - $11,250 (received in 1996) • Connection charges of $296,819 (see schedule below). • Reimbursement of all administrative, legal and engineering costs incurred by the City. A summary of connection charges related to this project are as follows: Received Through Budgeted December 31, 1996 Phase No. Per/unit Total No. Amount I 26 $3,854.80 $100,224.80 21 $80,950.80 II 25 3,854.80 96,370.00 15 57,903.00 III 26 3,854.80 100,224.80 19 73,241.20 Total $296,819.60 $212,095.00 r City of Oak Park Heights, Mmnesota Management Report, Page 41 r AAE - Brackev Addition This fund was established in 1995 to account for expenditures associated with the developer r agreement with Robert L. and Janet M. Brackey. Key points of the developer agreement are as follows: • All improvements will be paid for by the developer. _ • Park dedication fee of $98,735 (received in 1995). • Connection charges of $497,602 (see schedule below). • Reimbursement of all administrative, legal or engineering costs incurred by the City. A summary of the connection charges related to this project are as follows: Received Through • Budd December 31, 1996 Unit No. Per/Unit Total No. Amount Menards 1 $125,785.80 $125,785.80 1 $125,785.80 Oudot A 1 114,717.10 114,717.10 0 0.00 Oudot B 1 257,099.50 257,099.50 0 0.00 Total $497,602.40 $125,785.80 City of Oak Park Heights, Minnesota Management Report, Page 42 AAE - Haase Addition This fund was established in 1995 to account for expenditures associated with the developer agreement with Elmer and Ruth Haase. Key points of the developer agreement are as follows: a All improvements will be paid for by the developer. a Park dedication fee of $25,795 (received in 1995). e Connection charges of $163,346 (see schedule below). a Reimbursement of all administrative, legal or engineering costs incurred by the City. A summary of the connection charges related to this project are as follows: Received Through Budgeted December 31, 1996 Unit No. Per/Unit Total No. Amount _ Applebees 1 $15,749.20 $15,749.20 1 $15,749.20 Outlot A 1 65,225.00 65,225.00 0 0.00 Outlot B 1 82,371.60 82,371.60 0 0.00 Total $163,345.80 $15,749.20 City of Oak Park Heights, Minnesota Management Report, Page 43 AAE - 58th Street Improvements - Phase II This fund accounts for the costs associated with the extension of 58th Street from the High School Driveway east to Norell Avenue. A summary of financial activity to date is as follows: Revenues: MN Dot $230,000 Inter 1,087 Transfer in: Revolving Capital Fund 345,000 Total revenues 576,087 Expenditures: prelirdnary costs 16,381 Construction costs: Contractors 432,895 testing, etc. 68,349 odder costs 1,158 Total expenditures 518,783 Fund balance - December 31, 1996 $57,304 The transfer from the Revolving Capital Fund provided internal financing of this project. This project was assessed in 1995 and the assessment roll ($287,380) was assigned to the Revolving Capital Fund. Upon completion of the project, we recommend the remaining funds be transferred to the Revolving Capital Fund. City of Oak Park Heights, Minnesota Management Report, Page 44 AAE - 58th Street Improvements - Phase III This fund accounts for costs associated with the extension of 58th Street from Wal -Mart to Oakgreen Avenue. A summary of financial activity to date is as follows: Revenues $ - Expenditures: Legal and other 7,101 Land acquisition 20,313 Total expenditures 27,414 Fund balance (deficit) - December 31, 1996 ($27,414) City of Oak Park Heights, Minnesota Management Report, Page 45 A.A.E. - Connection Charges A major element to the financing or improvements in the AAE. section of the City is AA-E. connection charges levied against new development. The following schedule summarizes the 1992 through 1996 financial activity for the City's AAE. Connection Charge Funds: Am A-A-E. Connection Charges Sanitary Water Storm Desmiption Sewer Works Sewer Totals Revenues: River Hills - 1st and 2nd Addition: Heritage _ partial $33,237 $54,247 $42,139 $129,623 Krongard 4,950 8,079 6,276 19,305 E. Ludowese 1,538 2,472 1,996 6,006 Less: Amounts used for construction: River Hills - 1st Addition (30,942) (29,739) (13,757) (74,438) Valley Point - 2nd Addition - - (17,211) (17,211) Highway 36 i. ,.. .,.. yenta: Various 10,339 17,983 22,785 51,107 Less: Amts assessed, (6,056) (10,533) (13,345) (29,934) Wal -Mart Development 49 Wal-Mart ,543 86,172 109,182 244,897 Special assessments - - 11,843 11,843 Less: Credit for ponding area - - (36,394) (36,394) Amounts assessed (10,792) (19,084) (16,120) (45,996) Amount used for construction - - (41,232) (41,232) School District improvements: I.S.D. #834 201,373 405,341 289,348 896,062 Less: Amounts used for construction (160,000) (145,000) (289,348) (594,348) Brackey Addition 25,447 44,260 56,079 125,786 , Less: City portion - - (1,148) (1,148) Autumn a ge 47,435 74,808 89,770 212,013 Haase Addition 3,186 5,542 7,021 15,749 Investment 95 15,356 36,473 19,153 70,982 Total revenues 184,614 531,021 227,037 942,672 Expenditures: Transfer to debt service -1993 Bonds 72,500 408,000 - 480 ,E Transfer to Revolving Capital Fund - - 50,000 50,000 Brackey addition trunk storm sewer project _ _ 99,459 99,459 Storm drainage report _ _ 9,910 9,910 Total expenditures 72,500 408,000 159,369 639,869 Fund balance - December 31,1996 $112,114 $123,021 $67,668 $302,803 City of Oak Park Heights, Minnesota Management Report, Page 46 The balance at December 31, 1996 is committed for future debt service payments for the City's Water and Sewer Revenue Bonds of 1991/Refunding Bonds of 1993. Such future commitments (cash transfers) are as follows: F aWre Transfers to Debt Service Fund Sanitary Water Year Sewer Works Total 1997 $20,000 $105,000 $125,000 1998 20,000 105,000 125,000 1999 20,000 105,000 125,000 2000 20,000 115,000 135,000 2001 20,000 120,000 140,000 2002 20,000 125,000 145,000 2003 30,000 135,000 165,000 2004 5,000 50,000 55,000 Totals $155,000 $860,000 $1,015,000 _ As shown above, the A.A.E. Connection Charge balances at December 31, 1996 represent sufficient amounts to meet the sanitary sewer debt commitments for 1997 and 1998 and the water works debt service commitments for 1996 and 1997. Should such balances be insufficient to meet future debt service commitments, the City has the option of using the reserved balance ($661,800) in its Water and Sewer Operating Fund. See later comments relating to the Water and Sewer -' Operating Fund. Additional commitments of the Connection Charge Funds include transfers to the Revolving Capital Fund as repayment for the $360,000 transfer to the High School Road Improvement Fund. This commitment was $220,000 at December 31, 1996. City of Oak Park Heights, Minnesota Management Report, Page 47 Based on existing developer agreements, the Connection Charge Funds are scheduled to receive the following future connection charges as development occurs: fixture Connection Charges Sanitary Water Storm Sewer Works Water Total Autumn Ridge $18,974 $29,923 $35,908 $84,805 Brac k y Addition 75,458 130,726 165,633 371,817 Haase Addition 29,857 51,930 65,809 147,596 Total $124,289 $212,579 $267,350 $604,218 As previously mentioned, the fund balance of the Connection Charge Funds at December 31, 1996 plus future connection charges (based on existing developer agreements) is not sufficient to cover the debt service requirements of the Bonds of 1993. r Sanitary Water Storm Sewer Works Water Total Fund balance - December 31, 1996 $112,114 $123,021 $67,668 $302,803 Future connection charges 124,289 212,579 267,350 604,218 Subtotal 236,403 335,600 335,018 907,021 Debt service ....CIO (155,000) (860,000) - (1,015,000) Repayment , .... : j.....ent - - (220.000) (220.0 Su fficientl(insufficient) amou nt ($524,400) 18 (5327,979) 581403 y 5115,0 , _ As shown above, water works connection charges may not be sufficient to fund the debt service requirement. However, the City has designated a portion ($661,765) of the retained earnings of the Utility Fund to provide additional financing if needed. City of Oak Park Heights, Minnesota Management Report, Page 48 ENTERPRISE FUND The financial statements for the Enterprise Fund (Water and Sewer Utilities) are presented in Statements 14, 15 and 16 of the City's 1996 Annual Financial Report. Condensed comparative operating statements of income and expense for the utility operations of the City are as follows: Water Department 1995 1996 Amount Percent Amount Percent Revenue: Customer billings and other $177,345 100.00' /0 $184,542 100.00% Operating ecpenses: Contractual services 35,185 19.84 52,196 28.28% .. Administrative and personnel charges 47,500 26.78% 49,425 26.78% Other 4,698 2.65% 8,142 4.41% Depreciation: On purchased asses 7,607 4.29 7,929 4.30 On contributed assets 55,486 31.29 55,486 30.07% Total operating 04"ses 150,476 84.85% 173,178 93.84% Net operating income $26,869 15.15% $11,364 6.16% $200,000 Water Uperatin — $180,000 Revenue & Expense $160,000 t $140,000 ®All Other P�see ._ — �Dqzwifflicn $120,000 Cowl Services $100,000 - m —Opeca ing Revenue $80,000 $60,000 $40,000 $20,000 -- $0 1992 1993 1994 1995 1996 City of Oak Park Heights, Minnesota Management Report, Page 49 Sewer Department 1995 1996 Amount Percent Amount Percent Revenue: .. Customer billings and other $282,920 100.00' /o $327,933 100.00 Operating CXpenSCS: MCES 207,485 73.34% 266,494 81.26% Other contractual services 12,022 4.25% 9,535 2.91% Administrative and - - J charges 47,500 16.79% 49,425 15.07 Other 837 0.30' /6 183 0.06% Depreciation: O purchased asses 2,311 0.82% 2,311 0.70% On cpntrNod assets 42,838 15.14 42,838 13.06% Total opg opmses 312,993 110.63% 370,786 113.07% Net operating income (lam) _ ($30,073) - 10.63% .. _ ,.,, (542 853 13.07/• ' Sewer Operating $375,000 _I Revenue & Expense $350,000 $325,000 $300,000 EM All Other Expeam $275,000 ®MCES 5250,E ®D $225,000 eprxiati°n $200,000 --■-- Operating Revenue $175,000 ' $150,000 $125,000 $100,000 , $75,000 $50,000 $25,000 $0 1992 1993 1994 1995 1996 City of Oak Park Heights, Minnesota Management Report, Page 50 The single largest expense of the sewer operations is the contractual services of the Metropolitan Council Environmental Services (MCES). The MCES charges comprise over 70% of total sewer expenses. The City must set rates at levels adequate to pay for this pass - through cost, or provide funding from other City funds. In view of this financial structure and arrangement, the City's ability to exercise control over its sewer operations is limited. The City could be construed to be acting only as an agent for the MCES with regard to sanitary sewer -' operations. A summary of MCES charges is as follows: MCES Billings $250,000 -- $200,000 $150,000 $100,000 ` $50,000 $0 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 '— 0 MCES Estimated ■ MCES ActtW City of Oak Park Heights, Minnesota Management Report, Page 51 The MCES bills the City annually on an estimated basis. These estimated billings are adjusted at a later date and the City is billed the additional amount or given a refund. These estimated _ billings vary from year to year and may cause material variances in annual Profits or losses of the sewer operations. The MCES billings for the period 1984 through 1997 were as follows: Estimated Actual Percent Perms Year Amount Change Amount Change 1984 $75,338 $68,712 1985 71,879 (4.6 0 /6) 69,509 1.2% 1986 85,742 19.3% 72,992 5.0'16 1987 95,219 11.1% 98,921 35.5% 1988 98,135 3.1% 118,951 20.2% 1989' 108,742 10.8 116,235 (2.3%) 1990 132,368 21.7 130,135 12.0% 1991 146,393 10.6% 143,171 10.0 1992 157,574 7.6% 143,328 0.1% 1993 186,294 18.2% 152,833 6.6% 1994 181,353 (2.7%) 196,617 28.6% 1995 192,222 6.0% 227,228 15.6 1996 232,258 20.8% Not Available 1997 244,623 5.3% Not Available City of Oak Park Heights, Mnnesota Management Report, Page 52 There are two basic factors which affect billings from the MCES. The first is changes in use of the system The estimated usage increased from 185 million gallons for 1996 to 194 million gallons for 1997 representing a 5% usage increase. The second factor which affects the billings from the MCES is their cost to process gallonage. The cost to process (per million gallons) did not change from 1996 to 1997 ($1,378 per million gallons). The combination of these factors increased the City's estimated cost by 5% for 1997. The City responded to the increases in sewage treatment costs and increased sewer rates ... effective January 1, 1996. However, the sewer department continues to experience operating losses. We recommend the City consider increasing sewer rates. Alternatively, the City may consider changing its billing structure. Currently, all customers (commercial and residential) are billed under the same method. This method is to bill customers each quarter based on the 4th quarter usage. This is a common method among cities for residential customers. However, many cities charge their commercial customers based on actual usage throughout the year. We recommend the City consider this alternative. Y City of Oak Park Heights, Muuiesota -' Management Report, Page 53 SUN04ARY The following is a summary of recommendations detailed previously in this report which — should be addressed by the City in 1997: • Develop an investment policy. (Page 3) • Periodically review the status of property with special deferred assessments. (Page 7) • Review the current policy regarding general contingency reserve to determine if modification is appropriate. (Page 20) • Review the current policy regarding employee benefit reserve to determine if modification is appropriate. (Page 21) • Consider establishing an employee health insurance reserve. (Page 22) • Upon completion of 58th Street Improvements Phase II, transfer the remaining funds to the Revolving Capital Fund. (Page 43) • Consider increasing sewer rates. Alternatively, the City may consider changing its billing structure. Currently, all customers (commercial and residential) are billed under the same method. (Page 52)